IRS Collections in 2024: What to Expect if You Have Tax Debt or Unfiled Returns

IRS Increasing Audits, Collections, and Tax Levies in 2024

For the last few years, the IRS has not been operating in full force. To help individuals and businesses, the agency paused many collection actions during and after the COVID-19 pandemic. In particular, the agency didn’t send notices from its Automated Collection System (ACS). As of 2024, this break is over, and the agency is moving full steam ahead with increased funding for more collections and audits.

If you haven’t heard from the IRS about your unfiled returns or unpaid taxes in a while, that’s about to end. The agency is hiring more auditors and sending out collection notices. Here’s what to expect with IRS collections in 2024. To get help now, contact us at Ace Plus Tax Resolution today.

2024 IRS Strategic Hiring Increase

The Inflation Reduction Act earmarked $80 billion for the IRS. With the funds, the agency plans to hire thousands of new revenue agents, and analysts estimate that the increased focus on collections coupled with the agency’s process improvements will allow the IRS to collect $561 billion in revenue over the next seven years. If the government decides to extend the budget increases through 2034, the agency is likely to bring in about $850 billion extra in revenue.

What does this mean for taxpayers? To put it simply, it means that the IRS is devoting more resources to collecting unpaid taxes and finding non-filers. Currently, the agency loses about $700 million due to taxpayers not paying their liabilities.

At the time of writing in early 2024, the IRS has about 90,000 employees. It has already hired thousands of new customer service personnel and posted job openings for 3,700 positions, with the majority seeking high-grade revenue agents focused on audits. IRS insiders say the agency plans to hire tens of thousands of new employees. A TIGTA report shows that the IRS’s goal is to increase auditors by 55% in 2024 alone. The IRS’s 2024 hiring increases will make the agency the largest it’s been in decades.

Resumption of IRS Collection Notices

During the COVID-19 pandemic, the IRS took many steps to help taxpayers, including increased tax credits, new tax credits for employers, and halting many collection activities. In particular, the agency stopped sending out collection notices through its Automated Collection System (ACS).

As of 2024, the IRS is sending out new collection notices, and it’s using Letter LT38 to alert taxpayers about upcoming collection notices. The agency is also sending out demands for payment and notices about unfiled returns. If you have unpaid taxes or unfiled tax returns, expect to see the following notices soon:

• LT38 – This notice alerts you of your unpaid tax debt and advises you that the agency is going to start sending out notices again. It also informs taxpayers of automatic penalty relief on failure-to-pay penalties for tax years 2020 and 2021 for taxpayers with assessed balances of $100,000 or less for each tax year.
• CP59 – The IRS sends this notice to people with unfiled tax returns. You can respond by filing the enclosed Form 15103 (Form 1040 Return Delinquency) which allows you to explain why you haven’t filed or why you’re not required to file. If you don’t respond, the IRS may issue a substitute for return to assess tax against you and start the collections process.
• CP3219N – Notice CP3219N is a notice of deficiency. The IRS uses this notice to alert people with unfiled returns about a proposed tax assessment made against them. When you receive this notice, you have 90 days (150 days if you’re out of the country) to file a tax return, appeal in Tax Court, or agree with the assessment.
• CP504 – The IRS sends this notice to people with unpaid taxes before it seizes their state tax refunds and starts to seize other assets (wages, bank accounts, personal/business property, real estate, etc.). The IRS paused these notices for years, but a few months ago, the agency started sending these notices to people who owe for 2022. As of the last week in February, the IRS started sending these notices to people with older tax debts (typically after sending the LT38 notice). Generally, the IRS sends notices CP501 and CP503 before CP504, but it’s not required.

The IRS is increasing compliance actions for all individual and business taxpayers, but the agency is paying particular attention to high-income taxpayers with unfiled returns. On February 29, 2024, the agency announced that it sent out notices related to over 125,000 cases of unfiled tax returns from 2017 to 2022. Approximately 25,000 cases deal with taxpayers who have over $1 million in income, while 100,000 are focused on people with incomes between $400,000 and $1 million.

However, that doesn’t mean you don’t have to worry if you have unpaid taxes and your income is lower than the above thresholds. Janet Yellen did not deny a claim that 90% of new IRS audits would be on individuals making less than $400,000 annually. Also, The IRS still uses the $200,000 threshold to measure high-income returns since it defined high-income taxpayers as those with a total positive income of $200,000 or more.

As the IRS continues to increase collection efforts through 2024 and beyond, the agency will reach out to millions of taxpayers at all kinds of income levels, including increased audits of working taxpayers who claim the Earned Income Tax Credit.

Taxpayer Options for Unpaid Taxes

Unpaid taxes can be extremely stressful, but there are options. The IRS offers the following payment plans and relief options to taxpayers who owe back taxes:

• Installment agreement – Take up to the collection expiration date to make monthly payments on your tax debt. Interest and a small late payment penalty will continue to accrue on your account, but the IRS won’t pursue any collection actions against you.
• Partial payment installment agreement – A special type of monthly payment plan with a reduced amount where the IRS waives the remaining balance at the end of the payment plan, but you must provide financial disclosure to prove that you’re paying the highest monthly payments that you can afford.
• Offer in compromise – You pay the most you can afford to pay based on your income and assets in a lump sum or 24 monthly payments with this one-time settlement. The IRS forgives the remaining balance, but you must stay compliant with certain rules for the next five years or you risk losing the agreement.
• Currently not collectible – To get your account marked as currently not collectible, you must prove to the IRS that you can’t afford to pay anything. Then, the IRS pauses all collection actions against you until your finances improve.

There are also other relief programs that may be able to help you. For example, unpaid payroll taxes can lead to severe consequences from the IRS, including the Trust Fund Recovery Penalty, levies, and seizures, but seeking professional tax representation can help resolve these issues and protect your business from the IRS’s aggressive collection actions.

Penalty abatement can reduce or eliminate penalties based on reasonable cause or first-time incidents. The IRS’s Innocent Spouse program helps taxpayers who are facing tax debt due to actions their spouse took without their knowledge. Additionally, depending on the situation, you may also want to look into tax appeals, OICs based on doubt of equity, or OICs based on effective tax administration.

Steps Towards Compliance: Responding to 2024 Notices

IRS Commissioner Danny Werfel said, “The IRS is now taking swift and aggressive action to close this gap and has a variety of efforts underway to improve tax compliance in overlooked areas.”

If you receive an LT38, CP59, CP504, or any other IRS collection notice, don’t ignore it. Failure to respond will lead to increased penalties and more interest, and it could subject you to involuntary collection actions such as tax liens, wage garnishments, tax levies, and passport revocation or denial.

Note the deadline on the notice and prepare to take the required actions. If you have unfiled returns, either contact the IRS to explain why you didn’t need to file, or start preparing your tax returns for the years that you missed. If you’re missing income documents or business records, reach out to a tax professional – they can help you request wage and income transcripts and reconstruct data as needed.

If you have unpaid taxes, reach out to the IRS to set up a payment plan, apply for a settlement, or make other arrangements for your tax debt. A tax relief professional like us can also help you identify the best option and negotiate with the IRS on your behalf.

Get Ready for IRS Collections 2024

The nationwide tax relief firms know that the IRS is ramping up collection actions, and these firms are ramping up marketing efforts in response. When you’re looking for help with tax debt, these companies are usually the first to pop up on a Google search, but that certainly doesn’t mean that they are the best. In fact, that couldn’t be further from the truth.

Even the Federal Trade Commission advises taxpayers to avoid these companies. If you want affordable, sustainable results, don’t call the nationwide firms. Instead, follow the advice of the IRS Taxpayer Advocate Service and hire a local attorney, CPA, or enrolled agent to help you if you’re facing an audit or any other type of tax problem.

At Ace Plus Tax Resolution, we have extensive experience helping individual and business taxpayers deal with the IRS and state tax agencies’ audit and collection problems. We work with all kinds of cases, and we always provide our clients with high-quality personalized help tailored to their unique situations. Want to put your tax problems behind you? Then, contact us for a free consultation today.